Price Stability

With the help of an AD/AS diagram(s), explain one demand-side and one supply-side cause of deflation and consider which is likely to be more damaging to an economy.

Assess the extent to which using fiscal policy would be the best way to reduce a high rate of inflation.

With the help of an aggregate demand and aggregate supply (AD/AS) diagram, explain why two components of AD may increase and consider the extent to which an increase in AD will always lead to inflation.

Assess the view that the effects of a high rate of inflation are always more damaging for consumers than for firms.

Describe what has happened to consumer prices in the Eurozone between March 2021 and February 2022.

With the help of an aggregate demand and aggregate supply diagram, identify the main type of inflation in the Eurozone.

Consider the extent to which the shortage of supply of labour in the Eurozone may have contributed towards the increasing rate of inflation.

Using the concept of price elasticity of demand, assess the relative impact on poorer households, including those on fixed incomes, of rising prices of food and energy.

Assess the advantages and disadvantages of the ECB ‘substantially’ increasing the interest rate to control rising inflation.

With the help of a diagram, explain what is meant by cost-push inflation and consider whether this type of inflation has affected your own economy since 2021.

Assess whether the potential benefits of an increasing rate of inflation outweigh the potential costs for an economy.

Explain the difference between cost-push and demand-pull inflation and consider which is more likely to occur if there is a depreciation in the exchange rate of a country with few natural resources.

Assess whether monetary policy is the only way to control a high rate of inflation.

Explain what is meant by inflation and, using diagrams, show how it can arise both as a result of a shift in the aggregate demand curve and a shift in the aggregate supply curve.

Discuss whether the domestic effects of inflation are more serious than the external effects for an economy.

Explain using aggregate demand and aggregate supply diagrams the distinction between cost-push inflation and demand-pull inflation and explain one cause of each.

Discuss whether monetary policy measures are always effective in correcting a high rate of inflation.

Explain the difference between the causes of cost-push inflation and demand-pull inflation.

Discuss the most serious problems faced by an economy with a high and increasing rate of inflation.

Explain how a high rate of inflation and a rise in an economy’s exchange rate can each cause a deficit in an economy’s current account of the balance of payments.

Discuss whether a high rate of inflation or a deficit on the current account of the balance of payments is the more serious problem for an economy.

Explain how the rate of deflation is measured and the impact of a period of deflation on an economy.

Analyse how fiscal policy and monetary policy could be used to solve the problem of deflation. Assess which policy is likely to be more effective.